It's hard to get excited about DPI Holdings Berhad's (KLSE:DPIH) recent performance, with its share price down 10% over the past three months. However, we decided to take a look at the company's financials to determine if it has anything to do with the price drop. Since stock prices are usually driven by a company's long-term financial performance, we decided to pay more attention to a company's financial performance. In this article, we decided to focus on DPI Holdings Berhad's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for DPI Holdings Berhad.
How is ROE calculated?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, DPI Holdings Berhad's ROE is:
5.4% = RM4.7 million ÷ RM86 million (Based on trailing 12 months to November 2023).
“Return” refers to a company's earnings over the past year. Another way to think of it is that for every RM1 worth of shares, the company allowed him to earn a profit of RM0.05.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE is a measure of a company's profitability. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company's earnings growth potential. Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
DPI Holdings Berhad's earnings growth and ROE 5.4%
As you can see, DPI Holdings Berhad's ROE looks quite low. A comparison with the industry shows that the company's ROE is about the same as the industry average ROE of 5.3%. Considering the circumstances, it's not surprising that his DPI Holdings Berhad's net profit has declined by 11% over the past five years.
However, when we compare DPI Holdings Berhad's growth with the industry, we find that the company's revenues have been shrinking, while the industry has seen its revenues grow at 7.7% over the same period. This is very worrying.
The foundations that give a company value have a lot to do with its revenue growth. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). This can help you decide whether to position the stock for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings outlook. So you might want to check whether DPI Holdings Berhad is trading on a higher or lower P/E ratio relative to its industry.
Does DPI Holdings Berhad reinvest its profits efficiently?
The company has paid some dividends in the past, but currently does not. This means potentially all profits are being reinvested into the business.
conclusion
Overall, we have mixed feelings about DPI Holdings Berhad. Even if it appears to be retaining most of its profits, investors may not be benefiting from reinvestment after all, given the low ROE. Low revenue growth suggests that our theory is correct. In conclusion, we would proceed with caution in doing business with this company, and one way to do so is by looking at the risk profile of the business. You can review the two risks he has identified regarding DPI Holdings Berhad by visiting our website. risk dashboard It is available for free on this platform.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
